Seniors living in poverty on the rise in Canada, OECD says

An international think-tank warns that poverty among Canadian seniors is on the rise and that current pension safety nets may be inadequate to address the problem.
Women, particularly single or divorced women, are at greatest risk of living in poverty in their old age. (iStock)

An international think-tank warns that poverty among Canadian seniors is on the rise and that current pension safety nets may be inadequate to address the problem.

The comprehensive study on global pensions by the Organization for Economic Co-operation and Development showed that Canadians over 65 years of age are relatively well off when compared with most others in the 34-country group of advanced economies.

For example, the average poverty rate for people over age 65 in Canada was 7.2 per cent during the study period,  better than the 12.8 per cent average in the 24-nation OECD.

But the report also points to gaps in the Canadian situation.

Canadian poverty going up

For instance, as poverty rates were falling in many OECD countries between 2007 and 2010, in Canada they rose about two percentage points.

As well, the report notes that public (government) transfers to seniors in Canada account for less than 39 per cent of the gross income of Canadian seniors, compared with the OECD average of 59 per cent, meaning more Canadians depend on workplace pensions to bridge the gap.

Meanwhile, public spending on pensions in Canada represents 4.5 per cent of the country's economic output, compared with and OECD average of 7.8 per cent.

Canadian seniors depend on income from private pensions and other capital for about 42 per cent of their total.

"As private pensions are mainly concentrated among workers with higher earnings, the growing importance of private provision in the next decades may lead to higher income inequality among the elderly," the report warns.

"Those facing job insecurity and interrupted careers are also more exposed to the risk of poverty because of the lower amounts they can devote to retirement savings."

Women worse off than men

The report notes that rising poverty among Canadian seniors, although still relatively low, is most acute among elderly women, especially those who are divorced or separated.

"Higher poverty among older women reflects lower wages, more part-time work and careers gaps during women's working lives," the report said while also noting "the effect of longer female life expectancy ... for which many women have not been able to save enough."

The OECD says Canada's current pension support, both private and public, replaces only about 45 per cent of average pre-retirement gross income, well below the two-thirds that may experts recommend.

Among lower income Canadians, however, the replacement rate is 80 per cent.

Some provinces, particularly Ontario and Prince Edward Island, have been putting pressure on the federal government to move ahead with expanding the Canada Pension Plan which, along with Old Age Security, represents the main source of public transfers to seniors in the country.

But federal Finance Minister Jim Flaherty has so far rejected the approach, saying the economy is not strong enough to withstand the added premiums on firms and individuals expansion would entail.

Susan Eng, vice president of advocacy with CARP, an organization serving Canadians aged 50 and up, says Flaherty should be taking a longer view. 

Money collected by CPP is invested in the Canadian economy and when it is distributed as benefits, it becomes taxable and it is spent, leading to more economic growth, she said in an interview with CBC's Lang & O'Leary Exchange

"We are facing a crisis and it’s more serious for the younger generation than for the current generation of retirees." she said.

The lack of full-time employment makes it difficult for people to save for retirement, she said.

"People are losing their jobs into their 50s and not getting new ones so we have a perfect storm of circumstances where people are not able to save for their retirement. They haven’t got the good wage jobs when they’re older and they haven’t been able to save for retirement." she said.

Cuts made to OAS

Last year, the federal government also cut back on the OAS program by raising the age of eligibility to 67 from 65 effective in 2023.

Canada's approach is not unusual, however. The report notes that following the 2008-09 crisis, pension reform has been widespread throughout the OECD, with many moving to a higher retirement age of 67.

"Some countries have gone even further, moving to 68 or 69 years, though no other country has gone as far as the Czech Republic, which decided on an open-ended increase of the pension age by two months per year," the OECD adds.

Another innovation being adopted by some countries is tying future benefits with demographic and economic growth projections.

The OECD notes that many if not all countries are facing challenges with aging population, slow economic growth and governmental fiscal concerns. The cost of public pensions is set to increase in many OECD countries, from an average 
of  nine per cent of GDP in 2010 to 12 per cent in 2050.

With files from CBC News


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